Big pay cheques are in the Post

Australia’s most highly paid public servant,
Ahmed Fahour
, deserved a pay rise in 2012 after delivering one of the best performances of any retail network in the country, but the 22 per cent rise to $2.7 million is staggering.

Fahour’s pay may well be justified if Australia Post were headed for privatisation, but that is not the case.

While privatisation of Australia Post has been talked about over the years, Shadow Treasurer
Joe Hockey
made it clear in 2010 he would not sell the business that had revenue of $5 billion and a profit of $281 million in 2012.

Fahour deserves plenty of praise for transforming a business suffering heavy losses because of the decline in use of traditional mail and the costs of providing statutory services under its guiding legislation.

However, his pay is another stratosphere relative to what is being paid to others in his industry. In the UK, the chief executive of Royal Mail, Moya Greene, who is facing the same challenges as Fahour, was paid £1.1 million ($1.7 million).

The Royal Mail had revenue of £9.5 billion in 2012 and made a profit before modernisation costs of £442 million. Its bottom line profit was £253 million.

Another comparison that brings home the excessive pay at Australia Post is with one of the world’s leading postal and express companies, Deutsche Post. It is a former government owned provider that was privatised.

Its chief executive, Frank Appel, was paid €3 million ($3.7 million) in 2011. Deutsche Post had revenue of €52.8 billion and profit of €2.4 billion in 2011.

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Fahour has been building the retail business and the parcels and express delivery businesses which delivered profits before interest and tax in 2012 of $544 million.

The challenge he has faced is typical of those facing many executives in industries caught up in a structural decline in traditional revenues. Australia Post has the additional cost of its statutory customer service obligation, which was $165 million in 2012.

Fahour and his management team have been offered the sort of incentives found in the private sector. The chief executive and senior managers have a percentage of their remuneration at risk.

Bonuses are paid depending on performance against a range of factors including financial, customer satisfaction, employee engagement and other individual metrics that support the key business objectives.

High pay became the norm at Australia Post under former chief executive Graeme John and former chairman David Mortimer. Mortimer has retired.

The pay structures, which are determined after advice from external consultants, are based on principles issued by the Commonwealth Remuneration Tribunal which are designed to link pay with operational and financial performance.

Deputy chairman Mark Darras is interim chairman until the government appoints a new chairman.

The new chairman has a chance to rein in the excesses thanks to the formation in June this year of a nomination and remuneration committee.

The committee, which met once in July, has the role of reviewing and making recommendations to the board in relation to managing director and chief executive remuneration as well as chief executive succession planning.

Fahour announced yesterday he would spend about $2 billion over the next four years to transform Australia Post’s retail network and expand its parcel and express delivery services.

If Australia Post were a candidate for privatisation, it would probably perform well. Its return on equity in the latest period was 18 per cent.

However, this is slightly overstating the numbers because equity was reduced to cover the deficit in Australia Post’s defined benefit superannuation fund.

There was a strong groundswell of positive response to yesterday’s column about support for the Asian Region Funds Passport from a leading financial official in Shanghai.

The chief executive of the Financial Services Council,
John Brogden
, says China’s support is critical to the success of the Funds Passport.

He says that for it to become a reality, it needs to be embraced within Asia. “Australia should therefore support the creation of an appropriately constituted regulatory or oversight body in Shanghai," he told The Australian Financial Review.

He rightly called for an acceleration of the reforms proposed by former Macquarie Group chairman Mark Johnson in his report on Australia as a financial centre, published in 2010. Brogden says the Johnson reforms have bipartisan support so “ultimately it is a question of government priorities".

Several figures in the financial services sector highlighted the importance of getting ministerial endorsement of the Funds Passport initiative.

The president of the Australian Services Roundtable, James Bond, says the Funds Passport was a good example of focusing Australia’s trade liberalisation on services exports.

“Australia is already competitive in a range of services including financial services, architecture, logistics, education, legal services and health," he says. “We need to use this comparative advantage to grow services exports as manufacturing declines and the mining boom slows if we are to maintain economic growth."

Andrew Wilson, a PwC partner who is on the Treasury Working Group handling the Funds Passport initiative, says it is the perfect time to push the idea because there were some concerns in Asia about the European product called UCITS (undertakings for collective investment in transferable securities).

There were concerns about the potential impact on UCITS products of the financial tax proposed by some European countries. Also, buyers of UCITS were worried about the financial stability of European banks acting as custodians.

The proposal by UBS to force high-frequency traders to take a compulsory breather, even if for only one second, is not new.

This has been talked about in the United States for quite some time.

In fact, a commissioner from the US Commodity Futures Trading Commission, Bart Chilton, gave the idea some force during a speech earlier this week to the High-Frequency Trading Leaders Forum in Chicago.

However, as a prelude to releasing his HFT “To Do list", Chilton said HFT was not necessarily “so very incomprehensible and scary that we need to stop it".

He said it added liquidity to markets but not enough was known about its impact on markets. Chilton refers to HFT computers as “cheetahs".

His six-point “To Do list" includes many proposals that are already suggested by the Australian Securities and Investments Commission, such as kill switches, pre-trade testing, licensing and the introduction of wash-blocker technology to stop HFT programs trading with themselves.

Chilton’s most controversial proposal, which will scare HFT users in Australia, is the introduction of penalties for individuals.

“If there is another flash crash where people are harmed and [they lose money] due to a rogue cheetah, I think there needs to be steep penalties," Chilton said.

“And when I say penalties, I’m talking not just for the firm, but for individuals at the firm. If the cheetahs want to be involved in the high-flying, incomprehensible world, OK, but if you cause harm to markets and consumers, we shouldn’t stand for it."

The latest annual report for the HOSTPLUS industry superannuation fund has provided a new level of transparency for investment expenses paid to equity fund managers. For the first time, the fund has published the investment management base fees and performance fees as a percentage of assets.

If this disclosure is picked up more widely, there could further downward pressure on funds management fees.